By Ans Gerber, Head of Data Insights, Experian Africa
Did you know that nearly 70% of credit applications in South Africa are rejected? Understanding your credit score can change that. Get Smart About Credit Day is more than just a date in October; it’s an opportunity to take control of your financial well-being and learn how to manage your credit effectively. This day reminds us that financial discipline is a key ingredient of financial wellness. This discipline – whether it be in being responsible in our borrowing or honouring our repayment commitments – applies to seasoned credit consumers as well as newcomers to the world of credit.
Experian’s Q2 2024 Consumer Default Index (CDIx) report, which measures the quarterly default behaviour of South African consumers across various loan types, offers a glimmer of hope in the South African credit landscape. For the first time in nearly two years, the report reveals a slight but encouraging year-on-year improvement in the consumer debt repayment landscape, suggesting a potential stabilisation despite ongoing economic challenges.
However, the report also highlights a persistent challenge: while consumer appetite for credit remains high, approval levels remain low at 32.7%. This indicates that over two-thirds of credit applications are being rejected by lenders, signalling that lenders continue to be more cautious in their credit approval criteria than what was the case pre-pandemic. This phenomenon is likely one of the key drivers of the improvement in CDIx performance, as fewer consumers qualify for new debt. It is important to note that lenders typically consider two key aspects when they assess a credit application: a consumer’s credit risk – typically a credit score which can be thought of as a measure of a consumer’s credit reputation, based on historical behaviour by the consumer; and a consumer’s affordability. This relates to the degree to which a consumer can afford to add a new regular expense item to their monthly budget.
Building a Strong Credit Score: Your Foundation for Financial Success
A good credit score is essential for financial well-being. It’s a measure of your creditworthiness, reflecting your financial responsibility and opening doors to a range of financial opportunities. A strong credit score can help you secure favourable loan terms, lower interest rates, and even better insurance premiums.
Building a good credit score requires time and consistent effort, but it’s an achievable goal for anyone committed to managing their finances responsibly. Here are some practical steps to help you build a strong credit score:
Check your credit report regularly (it’s free!): Your credit report is a detailed record of your credit history, including open accounts, outstanding debts, and your payment track record. Regularly reviewing your credit report allows you to understand your overall credit health and identify any errors or inaccuracies that may be negatively impacting your score. This knowledge empowers you to make informed financial decisions and protect yourself from potential identity theft.
Tackle outstanding debts strategically: Managing outstanding debts effectively is crucial for a healthy credit score. Prioritise paying off high-interest debts first while consistently making at least minimum payments on other accounts. Even small, consistent payments demonstrate responsible credit management and contribute to a positive credit history.
Break the cycle of credit dependency: Relying on credit to cover daily expenses can lead to a cycle of debt. Break free by establishing healthy spending habits. Create a realistic budget that tracks your income and expenses, ensuring your spending aligns with your financial goals. Before making a purchase, ask yourself: “Is this a need or a want?” This simple question can help curb impulse buying and keep you on track.
Dispute inaccuracies and protect your credit health: Your credit report is a dynamic document that can contain errors. Regularly review your report for inaccuracies, such as outdated information or unfamiliar accounts. If you find any errors, promptly dispute them with the relevant credit bureau or lender, providing supporting documentation. Remember that legitimate credit repair takes time, so be wary of companies promising instant fixes.
Building a good credit score is a journey that requires patience and consistent effort. By adopting responsible credit habits, staying informed about your credit history, and utilising available financial educational resources, you can pave the way for a brighter financial future.
Ready to take control of your financial future? Access Up powered by Experian for free to get the tools and resources to guide you towards a better credit standing and financial empowerment. You can also visit Experian’s YouTube channel to see how the GeleZAR everyday heroes navigate their way through the consumer landscape, learning about credit, budgeting, identity protection, and financial discipline.
